Georgia Contractors Forfeit Contract Rights if Performing Work While Unlicensed

A recent Georgia Court of Appeals case highlights the serious risks contractors face if they operate in Georgia without a valid contractor’s license: they forfeit all rights to enforce their contracts.

In Saks Management and Associates, LLC v. Sung General Contracting, Inc.[1], general contractor Sung General Contracting, Inc. (“Sung General”) entered into a contract with Saks Management and Associates, LLC (“Saks”) to renovate an apartment complex owned by Saks.[2] Saks terminated Sung General for failure to timely and properly complete its work, and then brought a lawsuit against Sung General to recover its damages.[3] Sung General responded to the lawsuit with counterclaims against Saks for nonpayment. The parties submitted dueling motions for summary judgment on their claims which were denied by the trial court, and both parties appealed.[4]

On appeal, Saks argued – and the Court of Appeals agreed – that Sung General’s claims for payment were barred because Sung General did not possess a valid general contractor’s license.[5] The Court noted that Georgia’s contractor licensing law[6] prohibits any person or entity from engaging in the business of general contracting without a current, valid contractor’s license issued by the State.[7] The consequences for engaging in business while unlicensed under the licensing law are clear. It provides that:

[A]ny contract entered into on or after July 1, 2008, for the performance of work for which a residential contractor or general contractor license is required…and is not otherwise exempted… and which is between an owner and a contractor who does not have a valid and current license required by such work…shall be unenforceable in law or in equity by the licensed contractor…a contractor shall be considered unlicensed only if the contractor was unlicensed on the effective date of the original contract for the work, if stated therein, or, if not stated, the date the last party to the contract executed such contract, if stated therein…[8]

The Court found that Sung General was not licensed when the parties entered into the contract.

Sung General argued that the repair rule exemption to the general contractor license applied because Sung General’s work did not affect a load-bearing element. The repair rule exemption states:

Nothing in this chapter shall preclude a person from offering or contracting to perform or undertaking or performing for an owner repair work, provided that the person performing the repair work discloses to the owner that such person does not hold a license under this chapter and provided, further, that such work does not affect the structural integrity of the real property. The board shall by rule or regulation further define the term “repair” as used in this subsection and any other necessary terms as to the scope of this exemption.[9]

The State Licensing Board for Residential and General Contractors defines “repair” to mean fixing, mending, maintenance, replacement or restoring of a part or portions of real property. The rule enacted by the Board further provides:

Nothing in this [r]ule shall preclude a person or entity (including employees of said entity) from offering or contracting to perform or undertaking or performing for an owner repair work, provided that: (1) the person performing the repair work discloses in writing to the owner that such person/entity is not licensed as a residential or general contractor under this chapter; (2) the work does not entail the delegation or assignment to or engagement of any person or entity, other than employees, to supervise, manage or oversee the performance of any portion of the work undertaken; (3) the work does not affect the life safety requirements or structural integrity of the real property. Such repairs shall not include the removal or addition of any load bearing wall or the removal or cutting of any structural beam or load bearing support; and (4) The person performing repair must obtain permits and inspections as required by the local authority.[10]

The Court determined that Sung General did not qualify for the repair rule exemption because Sung General presented no evidence that it “disclosed in writing to [Saks] that [Sung General Contracting was] not licensed as a residential or general contractor”, which is an express pre-requisite to the application of the repair rule exemption.[11] As a result, the Court held that Sung General’s claims for payment failed as a matter of law because it was not licensed when it entered into the contract with Saks.

The Saks Management case is a stark reminder that significant consequences exist for contractors in Georgia who engage in contracting without a license. Note that only the unlicensed contractor loses the right to enforce the contract; the other contracting party still maintains its right to enforce and assert claims under the contract.[12]

Please contact the Construction Group at Smith, Gambrell, & Russell, LLP if you have any questions about Georgia’s contractor licensing law or the Saks Management decision. We can help your business navigate Georgia’s licensing law and stay up to date on all licensing requirements.

[1] Saks Management and Associates, LLC v. Sung General Contracting, Inc. et al.; and vice versa, 356 Ga. App. 568, 849 S.E.2d 19 (Ga. Ct. App. 2020).

[2] Id. at 23.

[3] Id. at 24.

[4] Id.

[5] Id.

[6] O.C.G.A. § 43-41-1, et seq.

[7] O.C.G.A. § 43-41-17(a).

[8] Saks Management and Associates, LLC, 849 S.E.2d at 24-25; O.C.G.A. § 43-41-17(b) (emphasis in original).

[9] O.C.G.A. § 43-41-17(g).

[10] Ga. Comp. R. & Regs. r. 553-8-.01

[11] Saks Management and Associates, LLC, 849 S.E.2d at 25.

[12] Id.

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